Retail: Abercrombie & Fitch discovers growing up is hard to do

Wednesday

Jun 21, 2017 at 9:15 AM

The New Albany-based brand is rolling out a new store design, identity and leadership team. But will it make a difference?

Suzanne Goldsmith

Once upon a time, the opening of a new Abercrombie & Fitch store was a youthful festival for the senses: pounding music, crowds of teenagers, clouds of cologne and a battalion of muscular and shirtless male models. But the recent invitation-only preview event for the chain's newest store, located at Polaris Fashion Place, was a comparatively muted and demure affair. No shirtless men; the music volume was restrained; the air was only lightly scented. Sparkling wine was served. For a brand so defined by its logo, the name of the store was surprisingly difficult to find. The only sign marking the storefront as Abercrombie & Fitch was a sculpted metal replica of an ornate company logo from the early 1900s. It was so subtle I initially walked right past the store.

In place of the chain's familiar dark nightclub vibe, the new store is airy and brightly lit. It's got the feel of an upscale home furnishings boutique, featuring expensive-looking materials like marble, slate and vegan leather. Visitors were encouraged to tour the fitting rooms, which are grouped in suites and feature adjustable lighting and sound as well as a call button and phone-charging stations. “We're incredibly excited about our fitting room experience,” said Abercrombie brand president Stacia Andersen at the February opening.

Andersen and her team at the New Albany-based Abercrombie & Fitch are hoping the store prototype at Polaris will signal the dawn of a new day for the troubled brand. Andersen, who later sat down to speak with Columbus Monthly, said the mall-based retailer plans to roll out six more redesigned stores this year: five in the U.S. and one overseas. At the same time, the 355 existing stores have been gradually opening their shutters to let in the daylight, toning down the music, fragrance and logos, turning their attention to customer service and altering the merchandise to appeal to a post-college shopper, age 20–29, instead of hormone-addled teens spending handouts from their parents. “Today, our customer has grown up,” she said.

Perhaps even more notable than the reimagined look of this new store, however, is that it has opened at all.

Retail in the U.S. is struggling. The sector's pain is so great that Atlantic Monthly recently called this moment, “The Great Retail Apocalypse.” This year has already seen 14 retail chains seek bankruptcy protection, many of them apparel stores; 89,000 workers in the retail sector have been laid off since October 2016.

Abercrombie & Fitch is no exception. Year-over-year same-store sales, considered a critical indicator of a chain's health, have been down every quarter but one over the past five years; in the last quarter of 2016 they dropped 13 percent. 2016 sales revenue, at $3.3 billion, was down 5 percent from 2015. The chain has been shrinking, closing stores as leases expire, with almost 400 shops closed in the past five years and 60 more projected to close in 2017. The company laid off 150 workers at its New Albany headquarters in January. Hollister, Abercrombie's lower-priced brand for teens and tweens and its biggest chain with 543 stores, is doing better than Abercrombie; same-store sales were up 1 percent last quarter. But the company's stock (ANF), which at its 2006 peak traded at $82 per share, has been sliding for years and for most of the first four months of 2017 traded between $10.50 and $12.50 a share.

Then on May 10—just as this issue was going to press and just three months after unveiling its redesigned Polaris store, Abercrombie & Fitch announced that, “after receiving expressions of interest, it is in preliminary discussions with several parties regarding a potential transaction with the company.” The release did not state what that potential transaction might be, nor did company spokespersons comment. The Wall Street Journal listed both Express, also based in Columbus, and American Eagle, based in Pittsburgh but operated by CEO Jay Schottenstein of Columbus, as potential suitors.

Barron's responded to the news by lowering its rating for Abercrombie stock from Hold to Sell, stating that “given 1) the continued free fall at Abercrombie and 2) a history of mergers in the specialty retailing sector not working and 3) a brutal operating environment, we believe the potential, especially for a material premium for ANF, is minimal and we see little potential for a transaction at the current time.”

In addition to the “brutal operating environment,” A&F has its own special challenges. The provocative marketing and reputation for exclusivity that once made the brand so popular may have become its greatest liability. “Exclusivity is out. Ostentatious branding is out. The world is connecting and becoming more one as opposed to separate clubs,” says Mike Bills, executive in residence at Ohio State University's Fisher College of Business, where he teaches innovation, and a partner at the management and brand consultancy Venn Growth Collective. “All those trends were not supportive of Abercrombie, and they were slow to change.”

As a result, the brand suffered. In 2016, A&F received the lowest score of any retailer on the annual American Consumer Satisfaction Index survey, earning it the moniker “America's Most Hated Retailer.”

Just before the Polaris store launch in February, Abercrombie & Fitch announced the appointment of a new CEO, the company's first since the visionary and eccentric Michael Jeffries was ousted in late 2014. Jeffries' successor, Fran Horowitz, joined the team around that time as president of Hollister; she oversaw the remodeling of many Hollister stores to refresh that brand before her promotion to company president in December 2015. As the new CEO of the formerly male-dominated A&F, Horowitz, who declined to be interviewed for this story, now captains an executive team that includes Abercrombie brand president Stacia Andersen, chief financial officer Joanne Crevoiser at and Hollister brand president Kristin Scott.

Fans and investors hope Horowitz's promotion portends a new stability in the C-suite, where a revolving door has been spinning since Jeffries' departure. But given the challenges of the market, the damage to the brand and the newness of the leadership, it's fair to ask: Will a new team and a new look for the stores be enough to save Abercrombie & Fitch?

The birth of an iconic brand

In the beginning, Abercrombie & Fitch was a thrilling place to be.

Not the first beginning, in 1892 when David Abercrombie founded the elite outdoor sporting goods store in lower Manhattan that outfitted the safaris of Teddy Roosevelt and Ernest Hemingway, who some say shot himself with his favorite Abercrombie & Fitch shotgun.

Not even the second beginning, in 1988, when Les Wexner and The Limited bought the struggling company and its small fleet of mall-based stores and began focusing on conservative menswear and haberdashery.

The birth of the Abercrombie & Fitch we know today occurred in 1992 when Wexner hired Jeffries to run the 35-store chain. Jeffries was known mainly for founding Alcott & Andrews, a “Brooks Brothers for women” that experienced brief success before filing for bankruptcy protection. But Jeffries brought energy and a willingness to shake things up. “We will be a world-known, fun, spirited brand!” he announced at his first Limited annual meeting.

Jeffries set his sights on teens and college students. The clothing and the image he and his team created managed to be both preppy and edgy, traditional and sexy. Its popularity skyrocketed. Over the next decade, the brand would become must-wear fashion for teenagers nationwide, earning the descriptor that peppers Abercrombie's marketing materials: iconic.

The sales staff, called “models” and hired primarily for their (primarily WASP-y) good looks, had to dress head to toe in Abercrombie, with the “Look Book” instructing them on what shoes to wear with which pants, while forbidding makeup, tattoos and colored nail polish.

In 1996, having grown to 125 stores with revenue of $335 million, Abercrombie & Fitch went public. Soon after, it spun off from The Limited (now called L Brands) and launched abercrombie, a children's line. In 2000, it started Hollister, and the following year moved to a sprawling, 500-acre “campus” in New Albany.

“Don't punish us too harshly”

The brand thrived on provocation. When the company was called out for racially offensive T-shirts and sexy thong underwear for young girls, pundits bloviated—and profits soared.

The racy A&F Quarterly magazine, which featured nudity and semi-satirical articles about drinking and group sex, got so many complaints, the company sealed it in plastic with a warning for parents. “Dear Santa,” ran the introductory letter in the Christmas 1999 issue. “Sometimes, no matter what you do, someone somewhere is going to get pissed off ... If you do encounter something in the following pages that reeks of irresponsibility and recklessness, well, don't punish us too harshly. Remember, growing up is hard to do.”

In 2004, A&F paid out $40 million to settle a class-action lawsuit claiming minority employees were forced to work in the back rooms. Jeffries surged ahead, opening two new chains, Ruehl No. 925 for 20- to 30-somethings, and Gilly Hicks, lingerie for teens.

But the world had a one-two punch in store for A&F. First came the recession. Sales plunged in 2008 and 2009. Ruehl and Gilly Hicks closed.

The second blow was just as damaging: Coming out of the recession, A&F's recovery was interrupted by an onslaught of bad publicity. In 2013, an old interview with Jeffries, published on Salon.com—one of the only media interviews he ever granted—was recirculated online. In it, he claimed that the stores didn't carry any extra-large items or women's sizes above 10 because “a lot of people don't belong” sporting the Abercrombie & Fitch brand.

“Are we exclusionary?” he was quoted as saying. “Absolutely.” His words barely caused a ripple when they were first published in 2006, but in 2013 they were a public relations disaster. A new generation of teens that valued diversity and inclusion recoiled. Petitions were signed. A YouTube video in which a young provocateur foisted used A&F clothing on homeless people went viral. Internet memes ridiculed the then-68-year-old Jeffries, whose flip-flops, ripped jeans and obvious affection for looking younger made him an easy target.

Meanwhile, a religious freedom case filed by a young Muslim woman who was turned down for a sales job at A&F because she wore a hijab was making its way to the Supreme Court. (She won that case in a landmark 2015 decision.)

In December of 2014, Jeffries was called to New York to meet with the board. He never returned to his office. He now reportedly divides his time between Capetown and Saint-Tropez.

Jeffries' abrupt departure was followed by two years of scrambling to revive the brand and rebuild the team behind it. It was a bruising period during which the company announced at least two full rebranding efforts, to little effect. The buying public had moved on.

Can you wear an experience?

The playing field for retailers today is vastly different from the one where A&F struck gold in the 1990s. While the recession is behind us and the economy is expanding, consumer habits have changed. With so much available online and many of the mainstream department stores that serve as anchors for malls closing locations (think Macy's, Sears, JC Penney), foot traffic at malls is declining monthly. That hurts smaller, mall-based chains like Abercrombie.

“Everyone's time-limited and a lot of shopping happens online,” says Mary Lynn Waite, creative director of the Columbus-based retail consulting firm Chute Gerdeman. “When you are willingly going to a physical space for leisure, there's got to be something that draws you there, something more experiential, more special. Something that's constantly changing.”

Constant change is the draw at Abercrombie's fiercest competitors, “fast-fashion” retailers such as Zara, H&M and Forever 21. These stores can bring a product to market more quickly than a curated “lifestyle” brand like A&F, and while their inventory is often somewhat random, it is also trendy and dirt cheap.

Americans also are spending less on clothes, period. According to a Cowen & Co. report citing the U.S. Bureau of Labor Statistics, apparel's share of consumer spending dropped from 4.9 percent in 2000 to 3.3 percent in 2015—a 32 percent decline. A spring 2017 survey of 5,500 teens by the market research firm Piper Jaffray found they were spending less overall, and that food—mostly eating out—was their biggest spending category.

“Younger consumers are really concerned with experiences,” says Ken Perkins, whose Retail Metrics firm advises institutional investors. “With being able to post where they are and what they're doing on social media … more money is being spent on tickets for shows, concerts and events. They're dining out more, they're going to the spa, they're rock climbing. ‘Let's do this and put it on social media, put it on my GoPro and post it.'”

The same thing is happening at the other end of the demographic spectrum, for different reasons. “Boomers, the biggest spending generation ever, are retiring,” says Perkins. “They have everything they need. If they're spending, they're spending on experiences like travel—and on health care.”

Broadening the market

The economy, the competition, the buyers: So much has changed since Michael Jeffries and his upstart brand struck gold in the 1990s. Can Fran Horowitz and her team steer the brand back into the revenue slipstream?

In her March conference call with stock analysts, Horowitz expressed confidence and outlined plans. Late to the game, Abercrombie is working hard to catch up with the “omni-channel” trend, which holds that brands should try to create seamless connections between their online, social media and store experiences. A new loyalty club, Instagram and Snapchat campaigns, an emphasis on “pop-ins” (purchase online, pick up in store) are now in place.

More than 80 percent of Abercrombie's U.S. sales are now to those over 18, she told investors. While tiny bikinis and ripped jeans are still front and center, there is an array of more sophisticated dresses, tops, shirts and jackets for men and women. Sizing, too, is more forgiving, to appeal to an older and a more diverse market.

“We have remade the block, the spec and the sizing of every single item that we carry,” Andersen says in a recent interview. “We ... know the key to our success is broadening the market of people who can actually wear our clothes.” Women's sizes now run to XL, and men's to XXL with an additional fit style they call “Relaxed.”

Abercrombie execs also hope to appeal to experience-driven millennials with the in-store experience displayed at the Polaris prototype. “We have spent an inordinate amount of time making sure the service is great,” says Andersen. “Everybody is fitted with technology. They can hold a fitting room for you; you can push a button and a person will come and bring you a different size. We just wanted it to feel like a very personal experience.”

Her favorite jeans

The style bloggers, referred to as “influencers” and paid by A&F, according to company spokeswoman Mackenzie Bruce, gushed appropriately on social media about the redesigned Polaris store at the unveiling. “Y'all, Abercrombie is BACK!” wrote local fashionista Candace Read the next day in her blog, “live love & read,” ending her post by noting it was “kindly brought to you by Abercrombie & Fitch,” adding, “All thoughts and opinions remain my own.”

On a gorgeous April Saturday afternoon, the store is packed. Lexi Schell, 16, has stopped in with her mother on the way home from dance class. She loves the dressing rooms. “Sometimes you dread trying on the clothes,” she says. “But here it's so fun, with all the lighting options.” Her mother Erin didn't come in to shop for herself, but she is thoughtfully stroking a grey flutter-sleeve tee. “It's so soft,” she says.

Laurie Chuang of Reynoldsburg, 30-something, has dropped in with her husband Fuwei and their baby. “I always assumed it was for a younger crowd,” she says. “I haven't shopped here in years. But my friend brought me back about a month ago and I bought two pairs of jeans. Now they're my favorites!” She tries on a cardigan and checks herself out in the sales-floor mirror; the fitting rooms are full, and a line has formed. There's another line at the cash register. On this day, at least, things are looking good for A&F.

A brand in limbo

Retail experts I consulted about the efforts to refresh the brand are not so sanguine. “They're fighting an uphill battle,” says Perkins of Retail Metrics. Mary Lynn Waite, creative director at the retail consulting firm Chute Gerdeman, visited the store and found it lovely but unremarkable. “I liked the heritage logo,” she says, “but I missed that heritage story, of where the brand came from and where it went. I wondered, ‘What is the story? What am I latching onto as a shopper that's going to attach me to this brand?' ”

“It's sort of as if [they feel that] by removing all the offensive content without replacing it with more compelling content, that that's better,” comments Mike Bills from OSU. “But I actually would argue that that's worse.”

He expected the new store would seek to counter the brand's corrosive reputation for exclusivity by emphasizing diversity in its staffing and its stock. “A&F has a significant opportunity to recast itself in a more inclusive and multicultural light,” he says. But in the store, he found young, conventionally attractive, mostly white sales associates. Many of the larger sizes were not available in store; he was advised that those should be ordered online. When he asked associates what the brand represents, they said “customer service.”

“That's not a brand,” he comments.

And how do shoppers feel about brands these days? At the height of its popularity, Abercrombie & Fitch was an aspirational brand: wearing the clothes signified wealth, youth, attractiveness, even popularity. But a recent report by the market research firm NPD entitled “Retail Reborn” says aspirational purchasing—where the brand defines the buyer—is over. Millennials are looking for bargains, comfort and versatile garments that will support an easy, individualistic, Instagram-friendly image. To sell to a typical “post-aspirational” millennial, says NPD, “you'll need to understand that the only brand that she's truly interested in is her own.”

Can a brand once defined by an emblazoned-across-the-chest logo succeed in capturing this new clientele? The new team at Abercrombie & Fitch is certainly trying. The reimagined store at Polaris, says Stacia Andersen, is a “learning lab;” other prototypes may be different. “We are in the midst, with a new agency that we can't talk about right now, to develop what is our external story,” she says. Stay tuned for another “new Abercrombie” to emerge sometime soon.